Chapter 3 - Employment Income (Pt. 1)

Question 1

What are the steps to determining if an individual is an employee or a self-employed contractor?

Answer 1

First determine the intended relationship of the payer and payee through contract and behaviour.
Next, apply the 3 tests to see if the economic reality reflects the intent of the parties

Question 2

What are the 3 tests for determining if an individual is an employee or a self-employed contractor?

Answer 2

1. Control test
2. Ownership of tools test
3. Chance of profit or loss test

Question 3

What is the control test when determining the employment status of an individual?

Answer 3

The control test determines who decides what work is done, where, when, and how.
If the individual is an employee, the employer will mostly decide. If the individual mostly decides, it indicates a contractor relationship

Question 4

What is the ownership of tools test when determining the employment status of an individual?

Answer 4

Determines who owns the tools needed to perform the work. If an employer provides tools and performs repairs on tools, it is likely an employee relationship. If an individual supplies their own tools and repairs they are likely a contractor. This test is less conclusive when the job is knowledge-based

Question 5

What is the chance of profit or loss test when determining the employment status of an individual?

Answer 5

Determines who is at risk for business losses and who stands to profit from business activities. If the employer takes profits as well as risks it is likely an employee relationship. If the individual takes on profits and risks it is more likely an independent contractor

Question 6

What do the variables represent in the equation
Employment income = A + B + C - D?

Answer 6

A is remuneration received during employment like salary and commission
B is benefits received like stock options and loans
C is allowances received (excluding reimbursements)
D is deductions like sales and home office expenses, etc

Question 7

What employer contributions are not included under paragraph 6(1)(a) for employment benefits?

Answer 7

1. Registered Pension Plan
2. Pooled Registered Pension Plan
3. Deferred Profit Sharing Plan
4. Private health services, group sickness or accident plan, and supplementary unemployment
5. Counselling services for physical or mental health, re-employment, or retirement

Question 8

What is the rule for employment benefits in terms of gifts from an employer?

Answer 8

1. Cash gifts are always fully taxable
2. Non cash gifts up to a value of $500 are not included in income
3. Non cash awards for employee anniversaries are not included as long as there is a gap of 5-years between awards and < $500
4. Immaterial amounts are not included

Question 9

What is the rule for employer subsidized meals for employment benefit?

Answer 9

Meals are not included if the employee pays a reasonable charge that covers the cost of food and service.
If it is not a reasonable amount there is a taxable benefit of the difference between the cost and the price paid

Question 10

What are the rules for discounts on merchandise acquired through the course of employment for benefit purposes?

Answer 10

1. If discounts are not available to all employees there is a taxable benefit of the difference between the price paid by the employee and the price all employees would pay
2. If the employee paid less than the cost of merchandise there is a taxable benefit of the free market value and the price paid

Question 11

What is the rule for employer-provided rent-free or low-rent housing for an employment benefit?

Answer 11

It is included in income as a benefit equal to the fair market value rent minus rent paid

Question 12

What is the rule for an employment benefit if your employer reimbursed a loss on the sale of a home?

Answer 12

First 15,000 of reimbursement on the loss is not taxable. 50% of the remainder is taxable.
To be eligible, the home must have been sold for employment purposes and the new residence should be at least 40km closer to the employer than the old one

Question 13

What is the difference between a standby charge benefit (6(1)(e)) and an operating cost benefit (6(1)(k))?

Answer 13

1. Standby charge is the benefit an employee receives when a company owned or leased vehicle is available for personal use
2. Operating cost is a benefit that arises when an employer pays the operating expenses of an employer-provided vehicle

Question 14

What do the variables indicate in the formula for calculating standby charge for an employer-owned vehicle?
Charge = A/B * [2% * C * D]

Answer 14

1. A is equal to B if the car is not primarily for work. Otherwise, A is the lower of personal kilometers and the value of B
2. B is 1,667km times D
3. C is the cost of the vehicle including GST/HST
4. D is the number of months the vehicle is available

Question 15

What do the variables indicate in the formula for calculating standby charge for an employer-leased vehicle?
Charge = A/B * [2/3 * (E-F)]

Answer 15

1. A is equal to B if the car is not primarily for work. Otherwise, A is the lower of personal kilometers and the value of B
2. B is 1,667 times the number of months the vehicle is available
3. E is the lease payments including GST/HST
4. F is the portion of lease payments relating to insurance

Question 16

What are the rules for calculating operating cost benefit for an employer-leased or -owned car?

Answer 16

1. If the vehicle is primarily used for work it is the lesser of 50% of the standby charge and personal km * prescribed rate for the year
2. If the vehicle is not primarily for work it is personal km * prescribed rate for the year

Question 17

How do we calculate an imputed interest benefit for a loan provided by an employer?

Answer 17

Benefit = Principal * (prescribed rate - paid rate)

The prescribed rate changes each quarter so benefit needs to be calculated each time

Question 18

What are the special rules surrounding employee loans for a home purchase?

Answer 18

1. The prescribed rate used to calculate the interest benefit is the lesser of the rate at the time the loan was granted and the rate during that quarter
2. The rate is reset every 5 years so after 5 years you can’t still use the original interest rate

Question 19

What are the rules for group sickness and accident insurance or group disability plans?

Answer 19

Income from the plans is taxable if the premiums are paid partially or entirely by the employer